Billington Holdings (LSE: BILN) is a penny stock I sure wish I’d bought one year ago. Or six months ago for that matter. It’s up 71% and 77% in those respective time frames!
Over five years, the share price is ‘only’ up 43.5%, as there was a setback during the pandemic. But barring a cancellation in 2019, there have also been cash dividends along the way. So this has largely been a very solid investment in recent times.
Bu what about the future? Well, I think there could further gains ahead. Here’s why.
Made of steel
Founded 76 years ago, Barnsley-based Billington is today one of the UK’s leading structural steel and construction solutions specialists.
The £51m-capitalised group turns raw steel into finished products, from simple structures to the most complex, which are then used by top contractors across the UK. Specialist lines of business include protective coatings, hoardings, safety barriers, and steel staircases.
Understandably, Covid impacted the company’s revenue and profits. There were project delays and supply chain issues, as well as cost pressures exacerbated by the conflict in Ukraine.
But the company has deftly navigated these issues, as seen in its FY22 results (year ending 31 December). Revenue rose 4.7% year on year to £86.6m, while profits soared more than fourfold from £1.3m to £5.8m. And its operating margin climbed to 6.8%, which is higher than previous years.
This flowed through to a fivefold increase in the dividend, which was raised from 3p to 15.5p. It was the highest declared dividend in the company’s history.
Management said: “We anticipate a further improvement in performance during 2023. Beyond the current year the market is more unpredictable. However, Billington has emerged from the pandemic as a stronger and more efficient business, which continues to be supported by a healthy balance sheet“.
Bright future
CEO Mark Smith is targeting more complex projects such as large warehouses, data centres, and stadiums. It’s also supplying steel to the booming UK film and TV studios industry.
According to consultancy firm Knight Frank, this sector will need an additional 6m square feet of production space by 2026 to meet rising demand from the likes of Netflix and Amazon.
As a result, the company has a strong order book for 2023, and is seeing opportunities in high-growth areas like renewable energy infrastructure and ‘gigafactories’ for electric vehicle batteries.
Of course, steel prices can be volatile, potentially impacting the firm’s profits, though the company does stockpile if necessary and employs various price hedging strategies.
And despite the cloudy economic forecast for the UK economy, brokers still expect a 30% increase in sales this year. Plus, they see profits soaring to between £7m and £8m. As for the dividend, there’s a massive hike to 20p penciled in.
Good value
The stock has a forward-looking price-to-earnings (P/E) ratio of eight, which screams value to me. It also carries a forward dividend yield of 4.9%, with the potential payout well covered 2.5 times by earnings.
Overall then, this is a well-run business supplying many high-growth sectors of the UK economy. The shares look cheap and the dividend promises a decent income stream.
If I had cash to invest this month, I’d buy Billington shares.
